Table Of ContentFINANCIAL
INSTRUMENTS
STANDARDS
A Guide on IAS 32, IAS 39 and IFRS 7
A P
UTHOR S ROFILE
Pooja Gupta is a qualified Chartered Accountant, Company Secretary,
LL.B and has completed her Masters in Finance from Frankfurt University.
She has 11 years of extensive professional experience in Investment
Management and Financial Services acquired during her stints with the
Big Four consulting groups in Europe as well as in India. She now holds
a senior post in Standard Chartered Bank.
In the accounting fraternity she was elected, with the highest number of
votes, as the Youngest Regional Council member of the Institute of
Chartered Accountants of India. She has served as the Council Member
of WIRC- ICAI for 3 years.
She has been honoured with the CA Young Leader award by the ICAI in
2008 for demonstrating exceptional courage, excellence and thorough
professionalism in the corporate world and has thus become an exemplary
role model for all to emulate. She therefore, undoubtedly occupies a
prominent place amongst the leading and eminent luminaries of India
Inc.
FINANCIAL
INSTRUMENTS
STANDARDS
A Guide on IAS 32, IAS 39 and IFRS 7
Pooja Gupta
Standard Chartered Bank,
Mumbai
Tata McGraw-Hill Publishing Company Limited
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To
my mother Saroj and sister Neetu
as a token of my love and affection.
Thank you both for everything you have
done to make me a stronger person and
aim higher in life.
The Book in Perspective
17 January 2008
Considering Pooja Gupta’s brilliant academic qualification and experience
as a consultant on accounting and financial reporting issues, I am sure
this well-researched book will be useful to the corporates, accountants
and auditors involved with preparation and analysis of financial
statements.
I congratulate Pooja Gupta for writing this book at just the right time
and hope that it will be welcomed by its discerning readers.
(S.M. Krishna)
Foreword
The last couple of years have witnessed companies around the world,
particularly in Europe and the Asia-Pacific area, switching from national
accounting standards to International Financial Reporting Standards
(IFRS). While this has been welcomed by investors and other stakeholders
for providing invaluable new insights about the companies’ financial
condition and performance, practitioners continue to grapple with
interpretations and practices that are evolving in areas where the standards
are not explicit.
Much has been written about the controversy surrounding the adoption
of these standards but less has been written about how to apply them.
Pooja Gupta’s Financial Instruments Standards: A Guide on IAS 32, IAS 39
and IFRS 7 serves as a practical and thorough reference for those applying
these complex international financial reporting standards.
Written in a lucid and simple language, this book guides the reader
through the complex rules and supplements the application and
implementation guidance in the standards with interpretation and analyses
based on several years of careful research. The worked out examples
help to illustrate the explanations and show exactly how even the most
complex calculations and disclosures should be made.
Contrary to popular belief, IAS 39 does not advocate full fair value
accounting, nor is it merely about hedging. This book deals with all aspects
of hedge accounting, as well as other aspects of the standards that are
difficult to understand, such as embedded derivatives and de-recognition
of financial assets, and will be of particular interest to those involved in
preparing and using company financial statements under IFRS.
x Foreword
Given the significant implications of IFRS on earnings and volatility,
capital and product profitability, this book, with it’s straight-forward and
easy-to-understand approach, is a very welcome addition to any financial
professional’s desk.
SANJEEV AGRAWAL
CFO, Singapore and South East Asia
Standard Chartered Bank
Preface
Why not invest your assets in companies you really like? As Mae West said,
“Too much of a good thing can be wonderful”.
—Warren Buffet
The much awaited deadline of 2005 for the adoption of International
Financial Reporting Standards (IFRS) for all the listed companies of the
European Union has long passes. A stable platform of high quality IFRS
have now been disseminated by the International Accounting Standards
Board. India is among the many countries around the world committed
to adopting IFRS directly or to align the national standards with IFRS
from the year 2011.
The requirements of financial instruments are complex and the entities
should take time to understand them including the impact on systems,
processes and documentation. The road to revised financial instruments
has been a long one. The Exposure Draft itself provoked considerable
comments and many people participated in roundtable discussions.
During 2000 and 2001, the IAS 39 Implementation Guidance Committee
issued more than 200 question and answer interpretations of the standard
based on questions and issues raised by entities and their auditors. The
complexity and the volume of the guidance continue to challenge the
entities as their understanding of the basic requirement deepen.
In IFRS, IAS 39 is the most talked about and controversial standards. So,
why is IAS 39 such a big issue? IAS 39 introduces fair value measurement
for a number of financial instruments, not just derivatives, and
consequently will lead to much greater earnings volatility than witnessed
under the Indian GAAP. IAS 39 is criticised by commentators on a number
of levels, ranging from its “mixed model” approach to measuring
instruments (some at fair value others at amortised cost) to arguments
that it is a “rules based” standard rather than one founded on “principles”.
Both of these criticisms are to an extent fair, but the standard attempts to
provide a framework for consistent and comparable treatment of financial
xii Preface
instruments, which is no small task. The ever-increasing complexity of
transactions that are undertaken by many companies means that a
standard such as IAS 39 will always be tested and potentially found
wanting.
This book contains chapters providing an overview of the key issues
associated with and application of IAS 32: Presentation and IFRS 7:
Disclosures. The practitioners, users, auditors and regulators of accounts
in resolving myriad practical problems faced in applying the financial
instruments standards. It explains the theory of the standards in sufficient
detail to serve as valuable adjunct to accounting textbooks.
In presenting the subject matter, help has been taken from the works
of numerous experts in the field. I am deeply indebted to my colleagues
in the accounting fraternity for their selfless assistance. My thanks go
particularly to those who reviewed drafts, to the publishers, McGraw-
Hill Education (India) Pvt. Ltd. for their support, cooperation and assisting
attitude. And finally but immensely, my sincere thanks to my family for
keeping my spirits up and my hamstrings in working order.
Any comments from readers, pertaining to errors and omissions and
proposed improvements are welcome.
POOJA GUPTA
